1.2.9 Indirect Taxes And Subsidies Flashcards
What is an indirect tax?
A tax that is paid on the consumption of goods/services.
What are the 2 types of indirect tax?
Ad valorem and specific tax.
What is specific tax?
A tax that is fixed per output.
What is ad valorem tax?
A tax that is a percentage of the purchase price.
What is the incidence of tax?
The amount share of producers and consumers pay of the tax.
What is a demerit good?
A demerit good is a good that has a harmful impact on society but is over-consumed.
What is a subsidy?
A subsidy is a per unit amount of money given to a firm by the government to increase production and increase the provision of a merit good.
What is a merit good?
A merit good is a good that benefits society but is under-consumed.
What does the incidence of a subsidy depend on?
The incidence of a subsidy depends on the PED of the product.
